Jobs, GDP, housing data on tap

RuthMantell

WASHINGTON (MarketWatch) -- U.S. consumers perked up this month, but their optimism may be short lived as job reports remain weak and housing woes persist.

The latest survey from the University of Michigan and Reuters showed a gain in sentiment for July, but analysts aren't convinced that gloom is gone. Neither are consumers it seems, given that survey respondents said they anticipate shorter work hours, fewer bonuses, and smaller wage gains.

July's gain could be a "dead cat bounce," said Richard Curtin, director of the Reuters/University of Michigan Surveys of Consumers.

"Following a steep decline in confidence a small gain is recorded before confidence resumes its downward slide," Curtin said.

Data in the coming week should provide telling details about whether there is reason for optimism or if further pressure should be expected from the waves of economic woes that have been crashing over consumers and the markets.

Jobs

High profile data will come Friday when the Labor Department reports on employment in July. In June, nonfarm payrolls fell 62,000, while the unemployment rate held at 5.5%. Economists surveyed by MarketWatch are looking for a July drop of 70,000.

"The bottom line is that we are not yet near a bottom in the labor market," wrote Joseph LaVorgna, chief U.S. economist for Deutsche Bank. "This should keep downside risks to the economy in place for some time."

Credit Suisse analysts expect a July decline in payroll jobs of 75,000. They forecast continued deterioration, and cited indicators such as a trend in initial jobless claims remaining at elevated levels and June's decline in the ISM Non-Manufacturing Employment Index.

"At an industry level, we would expect continued reductions in construction, manufacturing, and retail, with the health care and leisure/hospitality sectors providing a partial offset," analysts wrote.

The ADP employment report will be published Wednesday, and economists surveyed by MarketWatch are looking for a drop of 55,000 private-sector jobs. The June report showed a decline of 79,000.

GDP

On Thursday, the Commerce Department will release its advance report for gross domestic product in the second quarter. For the first quarter, the government reported that real GDP grew at annual rate of 1%. Analysts polled by MarketWatch are looking for an annual growth rate in the second quarter of 2.1%.

Analysts at Barclays Capital are looking for second-quarter real GDP growth of 2.5% at an annualized pace.

"We think consumer spending was an important support to growth in the quarter ... as rebate checks helped lift retail sales growth," analysts wrote.

Barclays added that the stimulus was not the only driver of growth. The analysts also cited an improving real trade balance, growth in business fixed investment and government expenditures, and a modestly slower drag in residential investment all made contributions.

"Meanwhile, inventory investment looks to have been a significant drag on growth," analysts wrote.

Scott Anderson, senior economist with Wells Fargo Economics Group, said it's likely that housing was less of a drag on second-quarter GDP growth, and cited a likely slowdown in dropping residential construction.

Housing

On Tuesday, Standard & Poor's will release the Case-Shiller home price index for May. For April, home prices across 20 major U.S. cities dropped a record 15.3% over the year.

"The Case-Shiller index will show a further drop in house prices, although markets will also look at whether this is starting to become more of a regional story," wrote Avery Shenfeld of CIBC World Markets Inc.

For May's annual result, Lehman Brothers is looking for a 16.4% drop in house prices across 20 major U.S. cities. Lehman analysts see the 10-city index falling 17.5%.

"This drop would bring average home prices back to summer of 2004 levels," Lehman analysts wrote. "In the April report, home prices surprisingly rose on a monthly basis in eight of the 20 metro areas surveyed. However, we attribute most of the rise to seasonal distortions as prices are typically high during the spring selling season."

Lehman analysts added that downward pressure on home prices is likely continue into 2010 in bubble markets given the "huge" overhang of homes for sale and rising foreclosures.

On Friday, Standard & Poor's Ratings Services said it may downgrade the subordinated debt and preferred stock of Fannie Mae
FNM, +6.62%
and Freddie Mac
FRE, -6.06%
reasoning that any government bailout of the mortgage giants could place these securities lower in the capital structures of the companies.

The Senate on Saturday cleared a massive housing bill designed to prop up the struggling U.S. housing market and put in place a U.S. backstop for giant mortgage-buyers Fannie Mae and Freddie Mac. See full story.

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